Section 44AD, 44ADA, 44AE (Presumptive scheme)- New Turnover limits from FY 2023-24 (AY 2024-25)

In this detailed guide, we’ll delve into the intricacies of Sections 44AD, 44ADA, and 44AE of the Income Tax Act, which provide presumptive taxation schemes for different categories of taxpayers. These schemes offer simplified tax compliance options and aim to reduce the burden of maintaining detailed accounting records. Let’s explore each section in depth:

Section 44AD: Presumptive Scheme for Businesses

Objective: To provide relief to small businesses by offering a presumptive taxation scheme.

Eligibility:

• Individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding Limited Liability Partnership Firms).
• Annual turnover or gross receipts should not exceed the prescribed limit for the previous financial year.

Budget 2023 Update:

• Revised turnover limit: Rs. 3 crore from 2 Crore
• Condition: 95% of receipts must be through online modes.

In Case you not qualify conditions of 95% of receipts through online modes (Other than Cash), Then limit will be 2 Crore

Conditions:

• Taxpayers must declare profits as per the presumptive scheme for at least 5 consecutive years.
• Failure to continue the scheme for 5 years results in losing presumptive tax benefits for the subsequent 5 years.

Features:

Example: Mohan opts for the presumptive scheme for AY 2024-2025 and must continue it for the next 5 AYs.

Section 44ADA: Presumptive Scheme for Professionals

Objective: Extension of presumptive taxation scheme to professionals such as doctors, lawyers, engineers, etc.

Eligibility:

• Resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs).

Budget 2023 Update:

• Revised turnover limit: Rs. 75 Lakh from 50 Lakh
• Condition: 95% of receipts must be through online modes.

In Case you not qualify conditions of 95% of receipts through online modes (Other than Cash), Then limit will be 50 Lakh

Features:

• Presumption of a minimum of 50% of gross receipts as income.
• No requirement for detailed accounting records.

Example: A doctor with gross receipts of Rs. 40 lakh presumes his income as Rs. 30 lakh under Section 44ADA.

Section 44AE: Presumptive Scheme for Transporters

Section 44AE of the Income Tax Act offers a presumptive taxation scheme specifically designed for individuals engaged in the business of plying, hiring, or leasing goods carriages. This section simplifies the tax compliance process for transporters and reduces the burden of maintaining detailed accounting records. Let’s delve deeper into the intricacies of Section 44AE:

Objective:

The primary objective of Section 44AE is to provide a simplified taxation scheme for individuals involved in the transport business, ensuring ease of compliance and reducing administrative burdens.

Eligibility:

Individual taxpayers engaged in the following specified transport businesses are eligible to avail the benefits under Section 44AE:

• Plying, hiring, or leasing goods carriages.
• Having upto 10 vehicles at any time within the previous financial year

How to Calculate Presumptive Income Under Section 44AE?

Under Section 44AE of the Income Tax Act, the presumptive income for individuals engaged in the business of plying, hiring, or leasing goods carriages is determined based on a specified rate per vehicle per month. Here’s a step-by-step guide on how to calculate presumptive income under Section 44AE:

Step 1: Determine the Presumptive Rate

The presumptive rate for calculating income under Section 44AE varies based on the type of goods carriage:

• Heavy Goods Vehicle (Gross Weight): Rs. 1,000 per ton of gross vehicle weight or unladen weight, whichever is higher, for every month or part of a month during which the vehicle is owned by the assessee in the previous year.
• Other Goods Carriages: Rs. 7,500 for every month or part of a month during which the goods carriage is owned by the assessee in the previous year.

Step 2: Calculate the Total Presumptive Income

For each goods carriage owned during the previous financial year, apply the applicable presumptive rate to determine the total presumptive income. Include a part of the month as a complete month for income calculation purposes.

Step 3: Compute Net Taxable Income

The total presumptive income calculated in Step 2 represents your net taxable income under Section 44AE. It is important to note that no further deductions under sections 30 to 38 of the Income Tax Act are allowed against this income, as they are deemed to have been already accounted for.

Example:

Let’s illustrate the calculation process with an example:

Mr. X owns a heavy goods vehicle with a gross weight of 15 metric tons and another goods carriage during the previous financial year 2023-24.

Calculation:

1. Heavy Goods Vehicle:
   • Presumptive rate: Rs. 1,000 per ton
   • Gross weight of the vehicle: 15 metric tons
   • Number of months owned: 10 months
   • Total presumptive income: Rs. 1,000 * 15 * 10 = Rs. 1,50,000
2. Other Goods Carriage:
   • Presumptive rate: Rs. 7,500 per month
   • Number of months owned: 12 months
   • Total presumptive income: Rs. 7,500 * 12 = Rs. 90,000

Net Taxable Income:

• Total presumptive income = Rs. 1,50,000 (Heavy Goods Vehicle) + Rs. 90,000 (Other Goods Carriage) = Rs. 2,40,000

Conclusion: Mr. X’s net taxable income under Section 44AE for the financial year 2023-24 is Rs. 2,40,000. This income represents the presumptive earnings from the operation of his goods carriages, and no further deductions are allowed against this income.

Features:

1. Presumptive Income:
   • Under Section 44AE, the income of the taxpayer is presumed based on the number of vehicles owned or hired for the transport business.
   • The presumptive income is calculated based on a specified rate per vehicle per month.
2. No Detailed Accounting Records:
   • Taxpayers availing the benefits under Section 44AE are not required to maintain detailed accounting records for each vehicle.
   • This provision significantly reduces the compliance burden for transporters.
3. Presumptive Rates:
   • The presumptive rates for different types of vehicles are prescribed by the Income Tax Act.
   • These rates are periodically revised by the government to reflect changes in economic conditions and operating costs.
4. Ease of Tax Calculation:
   • Tax calculation under Section 44AE is straightforward, as it is based on the prescribed presumptive rates per vehicle.
   • Transporters can easily compute their tax liability without the need for complex calculations.
5. Applicability to Different Types of Vehicles:
   • Section 44AE applies to various types of vehicles used for goods carriage, including trucks, lorries, trailers, tankers, etc.
   • The presumptive rates may vary depending on the type and capacity of the vehicle.

FAQs (Frequently Asked Questions):

1. What is Section 44AD?
   • It provides a presumptive taxation scheme for small taxpayers with turnover up to Rs. 3 crore.
2. Who can file returns under Section 44AD?
   • Resident individuals, HUFs, and partnership firms with turnover below the prescribed limit.
3. How is tax calculated under Section 44AD?
   • Tax is computed at 8% of turnover (6% for digital receipts).
4. Can Section 44AD and 44ADA be used together?
   • Yes, both sections can be used together if income is derived from both businesses and professions.
5. Is maintenance of books of accounts required under Section 44AD?
   • No, taxpayers under this section are not required to maintain detailed accounting records.

In conclusion, Sections 44AD, 44ADA, and 44AE offer simplified tax options for businesses, professionals, and transporters, respectively. The recent amendments aim to enhance compliance and promote digital transactions while providing relief to taxpayers.

Visit www.cagurujiclasses.com for practical courses